Financing

Fully Funding the Master Plan

Since the University of California was created in 1868, the people of California have intended that “as the income of the University shall permit, admission and tuition shall be free to all residents of the state.”58

This idea was reaffirmed in the 1960 Master Plan for Higher Education in California, which called for all three segments of California’s public higher education system to welcome students tuition-free.59

The political presumption has been that reinvigorating the Master Plan is prohibitively expensive. Our analysis shows that it is eminently feasible.

We can afford all qualified California students tuition-free, top-quality higher education—if the political will exists to do it. It is within California’s reach to restore quality, guarantee access, remove economic barriers, and eliminate most (if not all) future student debt.

This analysis aims to answer one fundamental question: How much will it cost California families to do just that?

Restoring the full Master Plan

Table 1, below, shows the calculations that produce the answer to this question. Because the CSU’s and UC’s funding model and history are quite different from the CCC’s, we treat the CCC separately.

For the CSU and UC, we seek to restore state funding to a level supportive of the Master Plan for Higher Education, assigning a 2000-01 base year for these two segments. 2000-01 was the last year before funding for higher education was shifted dramatically from state taxpayers to students and their families.

Restoring the Master Plan for CSU and UC | Starting with the amount of state funding and full-time equivalent (FTE) enrollment numbers for the CSU and UC in the 2000-01 base year, we divide the total state funding by the number of FTE students to obtain the state funding per FTE student. (FTE data comes from the individual higher education systems; state expenditure data comes from the Legislative Analyst’s Office).

CSU

UC

CCC

FTE students

State support per student

FTE students

State support per student

FTE students

State support per student

TOTALS

2000-01 base

289,523

$11,764

171,245

$26,074

1,046,344

$3,752

2016-17 current

409,382

$8,548

264,633

$13,247

1,244,836

$4,639

Difference

from 2000-01

-$3,216

-$12,826

+887

Reset of state support

$1.32 billion

$3.39 billion

No reset required

$4.71 billion

Tuition revenue

2016-17 net

$1.89 billion

$2.41 billion

$426 million

$4.72 billion

Next, we inflation-adjust these 2000-01 dollar amounts to their equivalents in 2016-17. We then multiply the larger FTE enrollments at CSU and UC anticipated in 2016-17 by the inflation-adjusted, base-year 2000-01 funding per FTE student to obtain the total amount of state funding required to restore Master Plan support for CSU and UC.

The gap between this amount and what the governor has proposed for 2016-17 represents the additional funding the state would need to provide. Using this method, we estimate that restoring 2000-01 funding per 2016-17 FTE student at the CSU and UC would cost an additional $4.71 billion.

Unlike CSU and UC, funding per FTE student for the CCC did not decline from 2000-01 to 2015-16; it increased. Restoring the full Master Plan at CCC simply requires elimination of the student fees anticipated in the governor’s 2016-17 budget while maintaining the proposed per-student funding level.

Eliminating student charges across all segments | If the CSU, UC and CCC were made tuition-free in 2016-17, and the state replaced all anticipated tuition and mandatory fee revenue, it would cost $4.72 billion.

Total cost to restore the full Master Plan | The total cost to restore state support to California higher education to the 2000-01 level per FTE student and eliminate tuition and mandatory fees for in-state students: $9.43 billion.

California can afford the best. It can’t afford any less.

Without more federal funding for higher education,60 can California’s tax-paying households afford to restore the Master Plan? Table 2 outlines how the $9.43 billion cost of restoring tuition-free access to top-quality higher education for all qualified California students would be distributed among state taxpayers.

We obtained data from the Franchise Tax Board for 2014 showing state income taxes paid by adjusted gross income.61 Note that the categories are for individual filers (where individual returns are often joint returns for families), partnerships and Subchapter S corporations, as well as corporations that pay income taxes.

For the median personal income taxpayer (including families), restoring the entire public higher education system while eliminating in-state student tuition and fees would cost $48—less than it costs to acquire a special interest license plate. Table 2 shows the cost for taxpayers in all income brackets.

California taxpayers’ costs might be somewhat lower if plans broadly discussed at the national level in 2016 were implemented—including tuition- free community colleges for all and tuition-free, public 4-year colleges for families below a certain income cap.

The takeaway, however, is that California can well afford to restore its full Master Plan with its own resources. The world’s sixth largest economy was built, in large part, by the foresighted leaders who conceived the Master Plan nearly six decades ago, inspiring similar educational and economic breakthroughs in states and countries with whom California competes today.

Virtues of the income tax surcharge

In these Master Plan scenarios, income taxes are presented as the source of state revenue to be used to reclaim public higher education. An income tax surcharge is the simplest way to illustrate the cost for typical taxpayers, but alternatives are available. The important point of this calculation is that any tax plan, if equitably distributed, would cost the large majority of Californians a small amount of money and avoid increasing student debt.

Table 2 | Additional state income tax needed to restore 2000-01 base year funding per student and eliminate tuition, by taxpayer’s Adjusted Gross Income

Adjusted Gross Income (AGI) class

Number of tax

returns

Total tax liability ($ 1,000s)

Percent

Liability per tax return (average)

Additional tax needed to restore public higher education

Cumulative percent of all tax returns

Negative

177,388

$11,899

0.02%

$67

$8.54

1%

Zero

9,792

$1

0.00%

$0

$0.01

1%

$ 1

to

$ 999

178,862

$65

0.00%

$0

$0.05

2%

1,000

to

1,999

167,147

$125

0.00%

$1

$0.10

3%

2,000

to

2,999

157,564

$187

0.00%

$1

$0.15

4%

3,000

to

3,999

182,034

$385

0.00%

$2

$0.27

5%

4,000

to

4,999

193,890

$1,368

0.00%

$7

$0.90

6%

5,000

to

5,999

189,598

$1,703

0.00%

$9

$1.14

8%

6,000

to

6,999

219,104

$2,712

0.00%

$12

$1.58

9%

7,000

to

7,999

218,654

$1,791

0.00%

$8

$1.04

10%

8,000

to

8,999

218,088

$3,332

0.00%

$15

$1.95

11%

9,000

to

9,999

277,644

$1,987

0.00%

$7

$0.91

13%

10,000

to

10,999

241,175

$1,543

0.00%

$6

$0.81

15%

11,000

to

11,999

254,420

$2,680

0.00%

$11

$1.34

16%

12,000

to

12,999

264,294

$4,719

0.01%

$18

$2.27

18%

13,000

to

13,999

260,307

$3,929

0.01%

$15

$1.92

19%

14,000

to

14,999

264,601

$4,638

0.01%

$18

$2.23

21%

15,000

to

15,999

249,280

$5,146

0.01%

$21

$2.63

22%

16,000

to

16,999

252,993

$6,142

0.01%

$24

$3.09

24%

17,000

to

17,999

248,039

$7,571

0.01%

$31

$3.89

25%

18,000

to

18,999

241,152

$9,556

0.01%

$40

$5.05

27%

19,000

to

19,999

241,824

$15,333

0.02%

$63

$8.07

28%

20,000

to

20,999

242,496

$13,309

0.02%

$55

$6.99

30%

21,000

to

21,999

225,721

$13,781

0.02%

$61

$7.77

31%

22,000

to

22,999

219,003

$14,385

0.02%

$66

$8.36

32%

23,000

to

23,999

217,999

$16,546

0.02%

$76

$9.66

34%

24,000

to

24,999

209,612

$22,748

0.03%

$109

$13.82

35%

25,000

to

25,999

205,509

$23,366

0.03%

$114

$14.48

36%

26,000

to

26,999

182,291

$22,600

0.03%

$124

$15.79

37%

27,000

to

27,999

197,468

$29,492

0.04%

$149

$19.02

38%

28,000

to

28,999

180,545

$25,935

0.04%

$144

$18.29

39%

29,000

to

29,999

183,629

$31,883

0.04%

$174

$22.11

41%

30,000

to

30,999

178,975

$34,376

0.05%

$192

$24.46

42%

31,000

to

31,999

178,130

$38,557

0.05%

$216

$27.56

43%

32,000

to

32,999

166,311

$35,055

0.05%

$211

$26.84

44%

33,000

to

33,999

168,708

$39,674

0.05%

$235

$29.95

45%

34,000

to

34,999

164,887

$42,307

0.06%

$257

$32.67

46%

35,000

to

35,999

145,475

$40,328

0.05%

$277

$35.30

47%

36,000

to

36,999

165,362

$55,064

0.07%

$333

$42.40

48%

37,000

to

37,999

156,557

$54,141

0.07%

$346

$44.04

49%

38,000

to

38,999

152,472

$57,203

0.08%

$375

$47.77

49%

39,000

to

39,999

140,823

$53,090

0.07%

$377

$48.01

50%

40,000

to

49,999

1,229,026

$676,081

0.91%

$550

$70.05

58%

50,000

to

59,999

966,780

$906,695

1.22%

$938

$119.42

63%

60,000

to

69,999

770,856

$1,073,854

1.45%

$1,393

$177.39

68%

70,000

to

79,999

639,247

$1,186,512

1.60%

$1,856

$236.35

72%

80,000

to

89,999

523,448

$1,266,756

1.71%

$2,420

$308.16

75%

90,000

to

99,999

444,525

$1,321,065

1.78%

$2,972

$378.43

78%

100,000

to

149,999

1,344,009

$6,527,053

8.81%

$4,856

$618.40

86%

150,000

to

199,999

636,171

$5,566,060

7.52%

$8,749

$1,114.12

90%

200,000

to

299,999

473,588

$6,834,617

9.23%

$14,432

$1,837.68

92%

300,000

to

399,999

170,913

$4,015,092

5.42%

$23,492

$2,991.42

93%

400,000

to

499,999

81,703

$2,706,437

3.65%

$33,125

$4,218.10

94%

500,000

to

999,999

120,235

$6,708,679

9.06%

$55,796

$7,104.98

95%

1,000,000

to

1,999,999

41,086

$5,517,828

7.45%

$134,299

$17,101.38

95%

2,000,000

to

2,999,999

10,160

$2,673,193

3.61%

$263,110

$33,503.74

95%

3,000,000

to

3,999,999

4,489

$1,749,934

2.36%

$389,827

$49,639.66

95%

4,000,000

to

4,999,999

2,531

$1,296,972

1.75%

$512,435

$65,252.21

95%

5,000,000

and

over

7,429

$14,681,417

19.83%

$1,976,231

$251,648.51

95%

Corporations

828,080

$8,593,087

11.60%

$10,377

$1,321.40

100%

Totals / Averages

16,684,099

$74,051,983

100.00%

$4,438

$565.19

Income classes based on all tax returns, which include individual returns, joint (family) returns, partnerships and Subchapter S corporations.

One benefit of using the income tax, which is progressive, is that every California student can attend tuition-free without giving wealthier families a free ride. High-income households pay more to restore the Master Plan, just as they pay more to fund other public priorities—because they derive an even larger benefit from an expanding economy. Using the income tax solves a problem with California’s current “high-fee, high-aid” higher education model, which requires arduous fee-waiver applications from lower-income families and hits higher-income families twice: once at tax time and again in prices for public services the taxes are supposed to provide. A better solution would be to charge the wealthy (and everyone else) once, through the income tax, and then to provide tuition-free education for all Californians.

Personal and corporate income taxes bring in nearly 75 percent of all state revenue.62 Allocating a portion of the cost to other taxes would dilute the effect on individual taxpayers. The scenarios above also assume that the costs will be distributed as a uniform surcharge across all income tax categories. If the surcharge were allocated more or less progressively, its effect on individual taxpayers would change.